OGJ Newsletter

• U.S. Industry Scoreboard 5/20 [70096 bytes]

While U.N./Iraq talks over limited sales of Iraqi oil continued at OGJ presstime, a stalemate appears increasingly likely.

Negotiations began in February over U.N. Resolution 986, which would enable Iraq to sell $2 billion worth of oil to pay for food and medical supplies for Iraq's citizens. But talks deadlocked over whether Iraqi or U.N. forces will distribute supplies, with U.S. and U.K. governments insisting U.N. troops be in charge.

Middle East Economic Survey (MEES) says recent discussion has centered on 22 amendments to a U.S./U.K. backed memorandum of understanding that must be signed before Resolution 986 can be enacted.

Outstanding issues include which side delivers supplies, which side operates an escrow account to handle oil sales income, and insistence that the memorandum is not seen as a prelude to lifting of oil sanctions against Iraq.

OPEC oil production is slipping but remains well above quota.

Total OPEC output fell to 25.78 million b/d in April from 25.815 million b/d in March, says MEES. This translates to 25.8 million b/d for the first 4 months of 1996, or about 1.28 million b/d above OPEC's 24.52 million b/d ceiling. Once again, Venezuela and Nigeria continued as OPEC's top quotabreakers by MEES' accounting, respectively producing 611,000 b/d and 185,000 b/d above quota.

Royal Dutch/Shell's image continues to take a beating.

A former Shell Nigeria employee has claimed on U.K. TV the company's producing operations caused widespread pollution in Nigeria. Bopp van Dessel resigned from Shell after 5 years with the company as an environmental troubleshooter, 2 years of that with Shell Nigeria. One press report said van Dessel claimed, "Wherever I went, I could see that Shell was not operating its facilities properly. They were not meeting their own standards, they were not meeting international standards. Any Shell site that I saw was polluted, any terminal that I saw was polluted. It is clear to me that Shell was devastating the area."

This came only a week after the company disclosed plans to return to Nigeria's Ogoniland region to clean up oil pollution and restart production (OGJ, May 13, p. 42).

In response to van Dessel's claims, Shell Nigeria said his comments do not show what Shell has accomplished to improve the environment in Nigeria, including 1996 environmental outlays there exceeding 1995's $150 million, spending of more than $20 million/year on schools, hospitals, water, and roads in the Niger Delta, replacement to date of more than 450 km of land flow lines and 1,200 km of swamp flow lines with a commitment to bury all land flow lines by yearend 1998, and an $850 million upgrade of two oil export terminals intended to ensure no produced water is discharged into inland waters after 1998.

The U.K. gas industry remains in turmoil.

Phillips has won the first round in a legal battle with Enron over the latter's attempt to escape a contract to buy gas from Judy/Joanne fields beginning in October. An English High Court ruling blocks Enron from refusing to agree to a commissioning date for gas delivery facilities under the project-its bid to defer take or pay obligations. Enron will appeal the decision.

Last month Enron sought a Texas court ruling against Phillips and Amoco over disputed contracts for delivery of Judy/Joanne gas. Enron decided against taking the gas because U.K. spot market prices have fallen below Judy/Joanne contract prices owing to surplus U.K. gas production (OGJ, Apr. 15, p. 31). Phillips has had to delay development of Judy/Joanne oil because Enron's refusal to take the fields' associated gas requires adding gas reinjection facilities to the fields' platform.

U.K. gas industry regulator Office of Gas Supply (Ofgas) has proposed a new price tariff under which British Gas will transport gas for itself and competitors, aimed at cutting residential gas bills by 10%. BG denounced the price plan as draconian and claims the proposals could mean losing half the 20,000 jobs in its Transco unit. Ofgas contends the measures would "enable Transco to run its business effectively and provide an appropriate return to shareholders. The proposed targets are challenging but in our view achievable. They represent a fair balance between the interests of customers and the interests of shareholders."

BG says the proposals would represent seizure of shareholder income on an unprecedented scale and undermine confidence in the regulatory system.

The proposed rates would be effective Apr. 1, 1997-Mar. 31, 2002. BG and other gas suppliers have until June 7 to submit comments to Ofgas. Final proposals will be published before the end of June and be open for public comment for 28 days. If BG rejects them, Ofgas likely will refer the matter to Monopolies & Mergers Commission by the end of July.

A pilot scheme in Southwest England gave 500,000 residential customers there a choice of gas supplier beginning Apr. 29. So far nine challengers to BG have been issued residential supply licenses under the pilot program (OGJ, May 6, p. 50).

Britain's Labour party, widely expected to win the country's next general election in 1997, is considering introducing "green" taxes in a bid to cut pollution, reported London's Financial Times. The party had not confirmed or denied the report by OGJ presstime. Proposed tax reforms would include a commercial and industrial energy tax equivalent to $1/bbl of crude oil and a hike in the waste incineration tax to 18/metric ton by 2005 from 2/ton in 1997.

FERC's drive to open the electric utility industry to competition has hit a Washington speedbump.

EPA Administrator Carol Browner asked the White House Council on Environmental Quality to review the FERC rule and ensure utilities don't increase use of coal fired plants, generating more air pollution.

Venezuela has lined up several agreements for sale of its trademark boiler fuel Orimulsion to European countries involving more than $1.4 billion dollars, says Foreign Minister Miguel Angel Burelli Rivas. The minister's disclosure comes on the heels of a recent decision by Florida rejecting use of Orimulsion at an electric power plant at Manatee, Fla. In negotiations are supply deals with Wales worth $800 million and southern Italy worth $600-700 million. They follow a recent supply accord with Lithuania and others in the offing (OGJ, Apr. 29, p. 30).

"The decision by the state of Florida is not because they are discriminating against Orimulsion due to contamination but rather for reasons that we assume are transitory and will not prevent Orimulsion from entering the other 49 states," Burelli said.

Canada's gas industry is worried about a possible move by the National Energy Board to cut operating pressures on pipelines as a move to combat stress corrosion cracking.

This comes in response to a recent string of ruptures on TransCanada and NOVA systems. Testimony at an NEB inquiry included the claim that pipelines are operating at as much as 98% of rated maximum pressures for long periods.

Industry associations estimate a 20% cut in pressure would cut supplies to U.S. and Canadian markets by 500 MMcfd and cost more than $1 billion (Canadian) in new facilities to replace capacity. TransCanada says a one-third cut in pressure would require $2.34 billion in new facilities to restore deliveries to current levels. The industry hopes the NEB inquiry will find that stress corrosion cracking is being effectively brought under control.

TransCanada claims control methods now in place would have prevented all seven cracking incidents on its lines. It has spent $174 million since 1985 to solve corrosion problems and claims an effective program in place to deal with it.

Expansion of Australia's Northwest Shelf LNG export capacity is moving closer to fruition.

Woodside is mulling a $500 million (Australian) gas pipeline from the project's North Rankin A platform to the Burrup Peninsula, facilitating a hike in the region's gas production. That is needed if the Northwest Shelf complex is to boost LNG exports by 6-7 million metric tons/year by about 2003. Woodside group hopes to reach preliminary agreement with Japanese buyers for those added supplies by yearend. The new supplies could come from Woodside's 7 tcf Perseus field and/or a venture with Wapet group's 4 tcf Gorgon field.

German automaker Daimler Benz has unveiled what it claims is the first fuel cell powered car suitable for everyday use.

The company contends the new car will be a competitive, pollution free alternative to combustion engine vehicles and could be in production before 2010, more than 10 years ahead of earlier expectations. In the car's fuel cell hydrogen reacts with oxygen to create electrical energy for propulsion and water vapor as waste. Daimler Benz claims the prototype, Necar II, can carry six people at speeds of more than 100 km/hr with an operating range of more than 250 km.

Hurdles still to overcome are onboard storage of volatile hydrogen and a drastic cut in manufacturing costs. For the former, Daimler Benz prefers an onboard liquid fuel such as methanol that can be broken down by an onboard reformer into hydrogen and CO₂.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.